the relationship between ownership structure and firm performance a case of construction companies listed on vietnam stock exchange

Research subject and scope...51.1 Overview about the ownership structure...71.1.1 Definitions of ownership structure...71.1.2 Categories of ownership structure...81.2 The concepts of fir

FOREIGN TRADE UNIVERSITYFACULTY OF ACCOUNTING AND AUDITING

First and foremost, I would like to express my sincereappreciationto my supervisor Bui Thu Hien, PhD who has beenconstantly supportive andpatient with mefrom the very beginningto the end of this thesis

I am also deeply grateful to teachers in the Faculty ofAccounting and Auditing at Foreign Trade University for providingme with useful knowledge and valuable lessons during the 4years.

Finally, I would like to sincerely thank my family and friendsfor supporting me in the process of completing this bachelor

I here with formally declare that I myself have written thesubmitted Graduation Thesis independently I did not use anyoutside support except for the quoted literature and other sourcesmentioned at the References of this Thesis.

Hanoi, June 2022

Student’s

TABLE OF CONTENTS

1 The rationale of the research 1

2 Previous studies 2

3 Research objectives and questions 4

4 Research subject and scope 5

1.1 Overview about the ownership structure 7

1.1.1 Definitions of ownership structure 7

1.1.2 Categories of ownership structure 8

1.2 The concepts of firm performance 11

1.2.1 Definitions of firm performance 11

1.2.2 Criteria to measure firm performance 12

1.2.3 The factors affecting the firm performance in the enterprises 14

1.3 Theories on the linkage between ownership structure and firmperformance 19

1.3.1 Ownership Concentration and Firm Performance 19

1.3.2 State Ownership & firm performance 21

1.3.3 Foreign Ownership 22

1.3.4 Family ownership 22

2.5 Data analysis method 33

CHAPTER 3: RESEARCH RESULTS AND DISCUSSIONS 36

3.1 Results of descriptive statistics 36

3.2 Results of correlation matrix 39

3.4 Results of regression analysis 44

3.4.1 Testing the model with dependent variable ROE 44

3.4.2 Testing the model with dependent variable ROA 47

3.5 Discussion on the research results 50

CHAPTER 4: CONCLUSIONS AND RECOMMENDATIONS 54

LIST OF ABBREVIATIONS

ABBREVIATIONFULL WORD

HOSE Ho Chi Minh Stock Exchange

LIST OF TABLES

Table 2.1 The variables used in the research 33

Table 3.1 Results of descriptive statistics 36

Table 3.2 Results of correlation matrix 40

Table 3.3 The results of Breusch-Pagan test in model (1) 42

Table 3.4 The results of Breusch-Pagan test in model (2) 42

Table 3.5 Collinearity Statistics 43

Table 3.6 Results of OLS model for ROE 44

Table 3.7 Breusch – Pagan Lagrange Test for ROE 45

Table 3.8 Results of REM for ROE 46

Table 3.9 Results of FEM for ROE 46

Table 3.10 Results of OLS model for ROA 47

Table 3.11 Results of Breusch – Pagan test for ROA 48

Table 3.12 Results of REM for ROA 49

Table 3.13 Results of FEM for ROA 50

LIST OF FIGURESFigure 1.1 Categories of ownership structure 8

Figure 1.2 The factors influencing the financial performance 19

Figure 2.1 The research steps 29

1 The rationale of the research

There are a larger number of studies on ownership structurein developing countries, especially countries with the participationof state ownership such as Russia, China, and Vietnam The mainreason is that state ownership in these countries has contributed acrucial part due to the economic transformation from thecentralized economy (Xu &Wang, 1999; Hoang, 2015) This alsorepresents state intervention in the firms’ business activities, whichhas a strong impact on the firm performance (Wei et al., 2004).Poor corporate governance, insufficient monitoring, and a lack ofhigh-powered incentives for state-owned business managementcan all explain state-owned firms' underperformance whencompared to privately-owned firms (Lazzarini & Musacchio, 2018).Furthermore, state-owned companies have various strategic goals,such as improved public services with lower failure rates, betterinfrastructure, beneficial effects on employment with favorableeffects on reducing social transfers, and reliance on market failures.Pursuing goals other than efficiency and profitability frequentlyresults in poor financial results.

For developing countries like Vietnam, the role of enterprisesin general and construction firms, in particular, is important inbuilding infrastructure for economic development As mentioned inVietnam’s Development Strategy to 2030, construction has beenemphasized as having an indispensable role in national economicgrowth (MOF, 2021) Thus, enhancing firm performance inconstruction companies in Vietnam will contribute to saving social

the firm performance of the construction companies and based onthat, propose solutions to improve their firm performance.

From the effects of ownership structure on the firmperformance, I chose the topic: “The relationship betweenownership structure and firm performance: A case of constructioncompanies listed on Vietnam stock exchange” for my graduationpaper The research provides empirical evidence on the correlationbetween ownership structure and firm performance of Vietnamconstruction companies and makes necessary suggestions andrecommendations for these companies to enhance their firmperformance.

2 Previous studies

● International studies

The study was carried out by Dakhlallh et al (2019) with thegoal of presenting empirical evidence on the relationship betweenthe ownership structure and the performance of shareholdingbusinesses listed on the Amman Stock Exchange (ASE) Theownership structure was measured using institutional and blockholders’ ownership Tobin's Q is used to assess performance (TQ).The panel data method was utilized to analyze data for a sample of180 companies listed on the Amman Stock Exchange (ASE) from2009 to 2017 in order to meet the study's aims The findings revealthat the processes of ownership structure have a considerableimpact on firm performance as measured by (TQ) So, institutionalownership has a significant positive link with (TQ), but blockholders' ownership has a significant negative relationship with (TQ),

between ownership structure and firm performance in non-financialenterprises listed on the Karachi Stock Exchange from 2008 to2010 Managerial Ownership has a strong negative association withfirm performance, whereas Concentrated Ownership has aninsignificant relationship with firm performance, according to thefindings Leverage, a controllable variable, shows a substantialnegative association with firm performance, whereas AssetsTurnover has an insignificant relationship with firm performance.Our findings revealed that managerial ownership had a significantimpact on firm performance In the Pakistani setting, agency issuesoccur as a result of an increase in managerial shareholdings, whichhas an impact on business performance.

Similarly, Ogabo et al (2021) investigates the impact ofownership structure on FTSE 350 company performance from 2008to 2018 The effect of management and institutional ownership onperformance measurements like as return on asset, return onequity, and Tobin's Q was studied in detail Descriptive statistics,correlation matrix, and regression analysis were used to analyze apanel data set of 48 enterprises with 432 observations Thefindings showed that when managerial ownership exceeds 5%,there is a considerable beneficial influence on businessperformance with no centralization effect According to theregression results, the percentage of independent directors on theboard of directors increases firm performance, whereas thepercentage of women on the board of directors diminishes firmperformance These findings add to the existing knowledge on the

Compared to the international studies, the number of studiesrelated to the research topic is still limited in Vietnam Here aresome typical Vietnamese studies:

Vo et al (2020) assess the impact of ownership structure onthe performance of listed companies in transition economies.Hypotheses on such a linkage are proposed based on agencytheory The proposed hypotheses are tested using extensive paneldata from 502 non-financial companies registered on the Ho ChiMinh Stock Exchange and the Hanoi Stock Exchange from 2013 to2018, as well as the system generalized method of momentestimation The findings of the estimations show that stateownership has a U-shaped relationship with the performance ofVietnamese listed companies, whereas foreign ownership and thedegree of ownership concentration have an inverted U-shapedassociation with the performance of listed companies The reportalso has governance implications, stating that in order to improvebusiness performance and boost investor trust, Vietnamese listedcompanies should reduce state and foreign ownership.

As stated by Nguyen and Nguyen (2017), foreign ownershiphas a negative impact on pharmaceutical firm performance interms of Tobin's Q, but the connection becomes positive afterforeign ownership exceeds 24.4 percent The performance of listedcompanies has a U-shaped association with institutional andindividual foreign ownership Furthermore, according to Nguyenand Ngo (2017), foreign ownership is inversely associated tocompany performance (as assessed by Tobin's Q) Aside from that,

these authors, firms should grow their foreign ownership in order toboost management efficiency and enterprise value.

3 Research objectives and questions

As mentioned above, this study aims to fulfill the objectivesas followings:

● To build a theoretical framework on the relationship betweenownership structure and firm performance.

● To investigate the effects of ownership structure on the firmperformance of construction companies listed on the Vietnamstock exchange.

● To propose some suggestions for these firms to improve theirfinancial performance and build an appropriate ownershipstructure.

Research questions:

To achieve the above research aims, the research questionsneed to be answered:

● What is the relation between ownership structure and firm

performance of the construction companies listed on theVietnam stock exchange?

● What are the impacts of different ownership structures on the

firm performance of the construction companies listed on theVietnam stock exchange?

● What are the suggested recommendations for Vietnam

construction companies to improve their firm performance?

ownership structure and firm performance of constructioncompanies listed on the Vietnam stock exchanges.

The scope of contents: The influences of ownership structureon the firm performance of Vietnam construction company listed onthe Vietnam stock exchanges

The scope of space: The construction companies listed onVietnam stock exchanges (including HNX and HOSE)

The scope of time: In the period from 2017 to 2021.

5 Research methodologies

In terms of data source, the authors collect secondary datafrom the public annual reports of 26 construction companies listedon the Vietnam stock exchange (including HNX and HOSE) from2017 to 2021 The websites which are used for databases includecophieu68.vn, finance.vietstock.vn, hnx.vn, etc Besides, theauthors also reference a number of research articles from economicjournals and scholars.

In terms of the research method, a quantitative approach isapplied in this study for data collection and analysis The SPSSsoftware is used to conduct data analysis with the following steps.The first one is descriptive statistics to provide basic features ofdata such as Min, Max, Mean or Standard Deviation, etc Second,Pearson’s correlation analysis, which describes the correlationbetween two variables with the coefficient r (from -1 to 1) Third,the researchers test multicollinearity by measuring VIF The finalstep is conducting a multiple regression analysis to find out therelationships among the variables.

dependent variable have a positive, negative relationship or norelationship with each other, besides, the researcher can alsodetermine the degree of strong correlation or not their weakness.

Step 4: Testing the defects of research data

Before analyzing linear regression and building regressionmodel, the author will check the data Because data testing is animportant step for us to determine the accuracy and standards ofthe collected data, testing the defects of research data will help theanalysis results have higher accuracy To test the defects ofresearch data, the author will use multicollinearity test andautocorrelation test.

Step 6: Conduct panel data regression analysis

In this step, the author conducts the regression analysis withthe collected panel data by the statistical methods including:Pooled OLS, FEM (Fixed Effects Model), REM (Random EffectsModel) And based on that, the influences of ownership structure onthe financial performance of Vietnam construction firms can beinvestigated.

Source: Author’s summary

2.2 Research model and hypothesis

2.2.1 Research model

Based on the theories mentioned in the previous chapter,combined with some previous research on the relationship betweenthe ownership structure and firm performance, the author uses themultivariate regression model using the small-squared estimation

Conduct panel data regression analysisTesting the defects of research dataAnalyze Pearson correlation coefficient (r)

Analyze descriptive statisticsCollect and process dataIdentify the selected variables

capital has the following general form:

ROE = *STATE *FOREIGN *SIZE *LEV (Model 1)ROA = *STATE *FOREIGN *SIZE *LEV *SOL (Model 2)

With: ROA, ROE are the ratios used to measure firmperformance

ai, b : Parameter of the model i

, : Constant (expressing the effect of factors other than Xi)C: Random or error component of the model

In this study, the data set includes 99 construction companieslisted on the HOSE and HNX in the period from 2017-2021 For 99companies, collected data consists of balance sheets and incomestatements However, some data were missing due to the fact thatsome enterprises did not fully disclose their quarterly financialstatements Therefore, data collection was only 495 observations.2.2.2 Research hypothesis

2.2.2.1 The relationship between state ownership and finanicalperformance

State ownership in companies is a characteristic of companieslisted on Vietnam’s stock market Most of the studies on stateownership stated that state ownership has a negative impact onthe financial performance of firms (Ongore, 2011; Janet, 2009;Sarwet, 2012) However, there are still a number of studies thatsuggest that there is a positive impact of state capital shares oncorporate financial performance (Tian & Estrin, 2008; LI, Sun & Zou,2009)

Besides, there are studies that state ownership is not directly